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Sunday, Aug 14, 2022
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Broad Gains Lift Valley

Lots of folks in the commercial real estate industry are bemoaning the halting pace of the market’s recovery. You just wouldn’t know it if you worked the San Fernando Valley. While much of the L.A. County office market saw no growth or even backtracked in the third quarter – aside from sizzling tech-heavy Westside – there were broad gains across the Valley. Leading the way was the Central Valley, a hub of small professional firms, while the major weak spot was in the West Valley, dominated by the corporate tenants of Warner Center. Overall, some 146,000 square feet of space was absorbed in the area if the communities of the Conejo Valley are added in. That dropped the vacancy rate four tenths of a percent to 16.6 percent compared to the prior quarter, according to data from Jones Lang LaSalle Inc. By contrast, the overall L.A. County vacancy rate was unchanged at 17.5 percent. Yet brokers are not jumping for joy just yet, opting instead for a positive, measured response to the small victories. “Class A and B office buildings are starting to fill up,” said Jeffrey Albee, vice president at Colliers International in Encino. “They’re projecting some growth there, and my prediction is it’s probably going to be slow and steady.” Landlords are doing their part to woo tenants. Asking rents for Class A space fell six cents valleywide to $2.18 a square foot, led by a 19-cent drop in the East Valley, a hub of media and entertainment firms. Also doing well at that end of the valley was Burbank, another media-centric market, and Glendale, where landlords were aggressively trying to fill vacant high rises. Space was absorbed in both markets as the vacancy rates fell. Varied recovery One of the biggest deals during the quarter was the move by Activision Publishing, a unit of Santa Monica video game maker Activision Blizzard Inc., to take 46,701 square feet at LNR Warner Center. But it wasn’t big deals driving the market last quarter, rather a succession of smaller ones, combined with expansions and renewals of existing leases, especially in the Central Valley. In September, medical services company CMS Cap Management Systems expanded its offices to 28,300 square feet of space in Encino. Also in Encino, career training school UEI College leased a 16,000 square foot space at 5445 Balboa Blvd., but has yet to occupy the offices undergoing renovation. With an abundance of available Class A space, Class B and Class C spaces struggled, but there was one large deal of note. In July, the San Fernando Valley Community Mental Health Center leased the former Social Security Administration Building on Van Nuys Boulevard in a 10-year, $5.5 million deal. The 25,000 square feet plus of Class C office space will be used to consolidate the nonprofit’s scattered Valley locations. Indeed, brokers say such buildings located near freeways will continue to improve at a faster rate than other areas. “They’ve got the 405 and the 101,” said Albee. “They’ll always get better rates because of that location.” But in the West Valley, where corporate tenants have not been in a mood to expand, 65,471 square feet came back onto the market. That pushed the vacancy rate to 19.4 percent. “The West Valley is currently experiencing negative absorption with a loss of tenants,” said Dan Sanchez, executive vice president at Jones Lang LaSalle in Santa Clarita. “There’s not a lot of new growth driving the area.” On the horizon The surrounding valleys also saw some mixed results. In the Conejo Valley, Keller Williams Realty expanded into 14,000 square feet of space in Westlake Village and UCLA Health Systems took possession of 15,700 square feet in Thousand Oaks. The moves helped the Conejo Valley submarket to lower its vacancies by half a percentage point to 17.4 percent. While the Santa Clarita Valley saw increased vacancies in the third quarter, brokers say the overall trend has still been one of marked improvement, and expect pending deals to absorb much of the vacant space. “We’re still skipping along the bottom at the moment, but I’d expect to see the Santa Clarita numbers tighten up soon,” Sanchez said. He pointed to the 117,000 square foot property formerly owned by mining company U.S. Borax at 26877 Tourney Road in Valencia, which is close to securing a buyer. The property is listed at $12 million and is represented by Cushman & Wakefield.

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